Wednesday, January 07, 2015

To question money-printing as the one-size-fits-all solution to every economic problem is to question the power structure of the status quo.

It is tiresomely obvious that we live in an era dominated by the idea that virtually all economic difficulties can be fixed by printing more money. There are various means of distributing the new money, but the dominant ideology is really very simple:whatever the problem might be, the solution is to print more money and/or issue more credit.

If the problem persists, clearly, we didn't print enough money/credit.

That such a simplistic formula might not work cannot be questioned, as money-printing is the source of all political and financial power. To question money-printing as the one-size-fits-all solution to every economic problem is to question the power structure of the status quo.

And that, of course, is not allowed.

Today's essay on money-printing and power was written by longtime contributor/essayist Jeff W. Jeff titled his commentary How You Can Tell If You Are Living under the Rule of Money Printers.

How You Can Tell If You Are Living under the Rule of Money Printersby Jeff W.

"In most of human history, people have lived under the rule of taxing authorities. The way a taxation system works is easy for anyone to understand. Businesses and individuals pay taxes to the state, and the state spends that tax money on armies, road construction, police, courts and jails, education, propaganda, lavish lifestyles for the top dogs, etc.

But what if you live under a regime of people who obtain their wealth not through taxation but through money printing? The money printers will not tell you that they are in power over you.

Money printers always go to considerable lengths to disguise their money printing. The money they print in today's world doesn't just roll off government printing presses; it is loaned into existence by a central bank or other banks, which makes the whole process of money creation much more difficult for citizens to understand. So without them telling you that they rule over you, how can you know?

In this discussion, I shall list some of the ways a money printing regime behaves differently from a taxation regime. You can then identify a money printing regime by its actions.

A taxation regime prospers when its tax haul increases. Thus an intelligently-managed taxation-funded regime will take actions to promote the general welfare, as the U.S. Constitution calls it. This regime wants businesses and individuals to prosper so that it can obtain a larger tax haul from them. Thus the interests of the people and of the taxation regime are aligned. They become partners, so to speak, in desiring increased prosperity, and they share in that increased prosperity if it comes.

In a well-managed taxation regime, the state incentives entrepreneurs and workers by allowing them to keep a large share of their earnings. Taxation regimes make management mistakes all the time, setting taxes too high or allowing corruption to seep into their administrations, but under an honest and intelligent taxation regime, the state and the people can work together to achieve success.

Taxation regimes sometimes seek to add to their tax hauls by enlarging their borders. This is often done through warfare. Taxation regimes can go bad in a variety of ways. But when the U.S. Founders wrote the Constitution, they were trying to set up a decent, durable taxation regime, and the federal government they created did manage to operate successfully for a number of years.

If, however, a nation's elites get their wealth and power through money printing, they have a very different path to success. Their success is measured in terms of the total wealth they can take for themselves by printing money and distributing it to themselves and their friends. How is their wealth haul from money printing maximized?

First they seek to enlarge the circulation area of their fiat. A small country, such as Venezuela, cannot print too much fiat without setting off destructive double-digit inflation or disastrous triple-digit hyperinflation. A large country with a large fiat circulation area extending beyond its geographic borders can print much more without creating damaging inflation. Thus a money printing regime will not seek so much to expand its borders as to expand the circulation area of its fiat, such as by making agreements with oil-producing states in the Middle East to price their oil in dollars. Requiring that the dollar be used for bank reserves is another way to expand its circulation.

A taxation regime, by contrast, that uses a gold-backed currency will not generally to seek to expand its currency's circulation zone beyond its borders.

The value of a fiat, like the value of anything else, is determined by the opposing forces of supply and demand. In a money printing regime, the money printers will print, print, print in order to enrich themselves, which of course increases the supply of the fiat and reduces its value. But if at the same time, the money printers take actions to increase the demand for their fiat, their fiat can hold its value even as they furiously print. One way to increase the demand is to enlarge the circulation zone, but there are also several other ways to prop up demand for a fiat currency.

They will tend to impose high taxes. Taxes increase the demand for fiat, as taxpayers must have fiat in order to pay their tax assessments. The optimal rate of taxation in order to spur maximum fiat demand is higher than the Laffer Curve optimum needed for a maximum tax haul. A money printing regime is thus also a high taxing regime.

They will create high levels of debt. This is done for two reasons. One is that under the debt money system that is used in the world today, the act of creating debt and printing money is one and the same. In order to print and take advantage of wealth created by that money printing, debt must necessarily be created at the same time. The other is that debt creates demand for fiat, as debtors must have fiat in order to make their debt payments. Any kind of debt payable in the regime's fiat, whether public or private, adds to the demand for that fiat.

They will try to enlarge the marketplace of goods and services for sale cheap in exchange for the fiat. This adds to the demand. If I am holding Venezuelan bolivars, the range of goods and services that I can buy in exchange for them is relatively limited. If I have, U.S. dollars, however, I can buy millions of different things. This adds to the value of the dollar. Those who hold bolivars will often want to exchange them for dollars if, for example, they want to buy something from Amazon.

They like it when other states peg their fiat to the fiat. This has the effect of enlarging the circulation zone. When China does pegs its yuan to the dollar, it also helps create a huge marketplace of cheap goods. Fiat demand is thus boosted two ways by pegging Chinese currency to the dollar.

They intervene in currency exchange markets to prop up the value of the fiat. This is the direct approach to increasing the demand for a fiat: go into the market and buy it. This demand is artificial, but is very effective in increasing the value of the fiat. It should be noted that taxation regimes often seek to decrease the value of their fiat in order to spur exports of manufactured items, which will in turn increase employment and spur increased tax revenues. A money printing regime, by contrast, will seek to prop up the value of its fiat, not caring about its nation's manufacturers.

Periodically in human history there have been sad episodes where rulers have attempted to set prices by decree in order to maintain the value of their debased currencies. Such price suppression attempts have always ended in failure, often accompanied by political chaos and bloodshed. Modern techniques of price suppression, however, have replaced these primitive methods of suppressing prices (which were attempted in the U.S. as recently as 1973 under the name of wage and price controls). Price suppression is an unmistakable characteristic of a money printing regime.

They suppress wages. In order to maximize wealth obtained from money printing, it is not only necessary to print a lot of fiat each year, it is also necessary that the wealth obtained from that money printing be restricted to a select few. When a worker gets a pay increase because of inflation, that worker is getting a piece of the wealth that the money printers think they should have. The money printers' maximize their wealth when all the freshly-printed fiat goes to them and the workers get no pay increase or the workers' incomes, as measured in the fiat, actually decline.

In order to suppress wages, money printers advocate maximum female participation in the workplace, open borders immigration and global labor arbitrage. Taxation regimes seek to increase taxpayers' wages. Pre-1971 the federal government supported private sector labor unions; afterward it opposed them in surreptitious ways, and today private sector labor unions have almost ceased to exist.

They suppress commodity speculation. In bygone days, debased currency regimes would punish hoarders and speculators by hanging them or shooting them and confiscating their hoards. Today hoarders and speculators are punished by market manipulation, huge waves of naked shorting in commodity exchanges. Here again the money printers want all of the wealth from money printing to come to them; they do not want to share any of it with hoarders and speculators.

They promote free trade. It sounds like a good thing, to promote free trade. But they do not promote free trade because they believe in freedom. They do it to suppress prices. I was interested to watch an interview with a Navy admiral recently where he said the purpose of the U.S. Navy was "to protect free trade." I thought the Navy's purpose was to protect the United States, but the money printers have other uses for it.

A feature of a money printing regime is that it makes some of its beneficiaries enormously, obscenely rich, much more so than in a taxation regime. Some of this surplus cash can be used to impose control over the elected government, either by bribery, or blackmail when the money printers control the apparatus of the surveillance state.

The banks control the government. As Illinois Senator Durbin admitted in 2009, "The banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." In a taxation regime, the banks are one powerful interest group among many. In a money printing regime in a debt money system, the banks rule supreme.

Is your government behaving like a money printing regime? If so, there is probably not much you can do about it. The money printers have an infinite supply of fiat that they can use at any time to maintain their grip on power. A successful attack on them, if it is to come, will likely come from outside, from rival states who are jealous of rival money printers.

One thing is clear to me. There can be no meaningful reform in the U.S. until the money printers are removed from power. As long their regime is in control, they can only be expected to continue to strip citizens of their wealth through the various means listed above. It was a sad day in the 1970's when the U.S. came under the rule of the money printers, and it has been a sad era ever since. There is no telling when it might end."

Thank you, Jeff, for the clear description of our money-printing power structure.

Admin. note: I will be off-line for the remainder of the month, other than a few moments here and there to post new content. Thank you for your readership and understanding.

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